Contract Management:

DOD Pricing of Commercial Items Needs Continued Emphasis

NSIAD-99-90: Published: Jun 24, 1999. Publicly Released: Jun 24, 1999.

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Jack L. Brock, Jr
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Pursuant to a congressional request, GAO provided information on the Department of Defense's (DOD) pricing of commercial items, focusing on: (1) the extent of price analysis DOD contracting personnel were performing to arrive at fair and reasonable prices for commercial sole-source items; (2) how well contract personnel performed price analyses; and (3) what guidance and training was available to assist them in determining price reasonableness.

GAO noted that: (1) in 33 of the 65 commercial sole-source purchases GAO reviewed, price analysis consisted of comparing the offered price to an offeror's catalog or price list, or to the price(s) the government previously paid for the same or similar items; (2) contracting officers accepted the offered price in 30 of the 33 purchases and negotiated lower prices in 3 cases (9 percent); (3) in the other 32 purchases, contracting personnel used one or more additional price analysis tools, such as obtaining commercial sales cost information; (4) contracting officers accepted the offered price in 19 of the 32 purchases and negotiated lower prices in 13 cases (41 percent); (5) the price analysis performed by contracting personnel were often too limited to ensure that prices were fair and reasonable; (6) for example, some contracting personnel believed that when the offered price was the same as the catalog or list price, it could be considered a fair and reasonable price; (7) in several cases, contracting personnel did not use pertinent historical pricing information contained in contract files that should have raised questions about the reasonableness of offered prices; (8) contracting officers, generally, were not using a discretionary solicitation clause that requires offerors to provide information other than certified cost and pricing data, such as sales data, in support of their offered prices; (9) some contracting officers paid prices that included unneeded services; (10) many contracting officers were not documenting in the contract file how they determined that a price previously paid for an item was fair and reasonable and, therefore, could be relied on in evaluating the offered price; (11) reasons given for the limited price analysis included workload burdens and urgent requirements for items; (12) DOD officials also noted the reduced negotiation leverage that contracting officers now have when purchasing commercial items in a sole-source environment; (13) DOD continues to provide guidance and training to assist contracting personnel in contracting for commercial items and in performing sound price analysis; (14) DOD's efforts have yet to be fully understood or embraced by all DOD contracting personnel; (15) the training should improve their price analysis and negotiating skills; and (16) recent legislation requires increased guidance for contracting personnel on price analysis tools, the appropriate use of information other than cost or pricing data, and the role of support agencies.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: On August 2, 2000, DOD's Director, Defense Procurement, issued a memo discussing the circumstances in which the FAR clause on requesting cost or pricing data or information other than cost or pricing data.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense for Acquisition and Technology to: (1) include, as part of DOD's efforts to implement recent legislation, clarification of the circumstances when it is appropriate to use the Federal Acquisition Regulation clause (52.215-20) requiring an offeror to provide information on the prices at which the same or similar items have been sold in the commercial market; and (2) issue a memorandum to contracting personnel emphasizing the importance of understanding and using historical pricing information for sole-source commercial item purchases.

    Agency Affected: Department of Defense


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